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Elevated demand persists

12 July 2023

While warehouse property activity has dropped from its fever pitch in the early part of 2022, there is still strong demand for logistics properties in the urban setting.

THE PICTURE for most of the last decade or so has shown demand for urban logistics growing quickly, as retailers and 3PLs in particular have sought to locate warehouse facilities close enough to their final delivery points while avoiding as much traffic congestion as possible. It is therefore important for these service providers to operate in facilities that are accessible, fit for purpose and without hours of use restrictions. While this is still broadly true, the clamour for such properties has calmed somewhat this year.

Kevin Mofid, director of commercial research, at real estate agent Savills says: “The volatility in the capital markets, along with elevated construction costs, means that we expect to see significantly less speculative development for urban logistics buildings in 2023. However, as things stand occupier demand for new facilities remains at an elevated level.”

That’s not a surprise when you look at some of the fundamentals underpinning the market. Research from the British Property Federation suggests that each additional new home needs 69 sq ft of warehouse space to support it. To look at the capital specifically, the London Plan recommends that 52,000 new homes should be built per year over the next ten years. Meeting this target would require 36m sq ft of new warehouse space just to support the new residents.

According to research from Savills, the largest online retailers and parcel companies occupy double the amount of warehouse space per capita in London compared with other more sparsely populated areas of the UK. Within London, the parcel delivery and e-commerce sectors occupy 9 warehouse units per 1 million people compared with just 3 units per million in Wales.

“The volatility in the capital markets, along with elevated construction costs, means that we expect to see significantly less speculative development for urban logistics buildings in 2023.”

In addition, since 2011, London has lost approximately 5.7m sq ft of warehouse space to other uses and while there has been a small rise in the total stock levels since 2019, the market is still undersupplied compared to a decade ago.

There is also an issue around building quality.

Kevin Mofid adds: “Rising energy costs are meaning that occupiers are now really starting to examine how well their buildings conform to modern standards. In the urban logistics sector, this will be problematic as currently, around 90% of units across the country have an EPC rating of C or below, meaning just as demand for better quality units rises the supply will fall, which ultimately will lead to higher rents.”

It is important the low level of standardisation in buildings in the urban setting, with ‘end users taking up a range of spaces’, continues real estate services firm JLL.

JLL expands: “Urban logistics reduces total operational costs, of which van drivers’ wages represent the largest share. That puts the focus on strategically located facilities that can offer efficient drive times and proximity to customers – be they businesses or households.”

Within the facility, parcels (B2C) or pallets (B2B) are moved from larger to smaller vehicles, which can then access densely populated and congested urban areas.

“Urban logistics space typically needs to enable cross docking, has little or no storage and has a low site ratio with large yard space to allow for vans to park while waiting to be loaded,” JLL continues.

Urban logistics scheme completes

A joint venture between developer Chancerygate and real estate firm Hines has completed on a £20m, 100,000 sq ft urban logistics scheme in Tonbridge.

The Tonbridge Trade Park scheme comprises 15 high specification Grade A units. Four of the properties, which total 31,750 sq ft, have been pre-let ahead of practical completion.

A further unit totalling 5,000 sq ft is currently under offer, which means more than 36% of space at the development is now let or under offer. The 10 remaining units total 63,250 sq ft and are available on a leasehold basis.

Located a mile from Tonbridge town centre, the scheme provides easy access to transport links including the A21 and A26, as well as to the M25.

Chancerygate development director Jonathan Lee, said: “Tonbridge Trade Park is the first new build, Grade A multi-unit trade park and urban logistics development in the area for more than 20 years.”

“Building configurations are often unstandardised with end users taking up a wide variety of spaces, from underground or multi/storey parking space to former light industrial, repurposed assets and purpose-built locations.”

Real estate firm Cushman & Wakefield also highlights the importance of microfulfillment in urban logistics in its Retail Evolution Microfulfillment report. Last mile logistics account for more than 40% of total delivery costs. So, the location of properties used to distribute online orders is an important consideration.

Cushman & Wakefield head of EMEA Logistics & Industrial Research & Insight Sally Bruer, says: “Retail property and logistics property both have a part to play in the future of retail operations as online retail grows. While logistics property remains both cost and operationally more efficient from which to deliver online orders, stores offer opportunities to leverage existing retail portfolios for more

and faster delivery service offering, higher levels of stock holding optimisation and online order conversion, cost benefits though the shorter distance to serve customers and even environmental benefits by reducing journey distances to fulfil customers’ needs and wants.”

Demand for urban logistics has lessened as the pandemic-inspired drive to eCommerce has inevitably inevitably cooled, but it is a market that will be key to the future of logistics. Watch this space.